ECN 481 Study Guide - Risk-Seeking, Life Insurance, Utility
20 Jan 2014
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Document Summary
Indifference curves represent different combinations of two goods between which the consumer is indifferent (yield the same total utility) Equilibrium any optimal point of consumption will occur at a point of tangency between an indifference curve and the budget constraint line. Marginal rate of substitution (mrs) represents the amount of y that a consumer is prepared to give up in order to get one more unit of x (consumption combination to reach equilibrium) Happiness is a three-act tragedy: based on a reference point comparing ones happiness to others, compares previous happiness to current happiness. I hate to loss more than i love to win (loss aversion) Peak-end rule: maximum pain suffered at any point and the mean suffered during the last three minutes. Anticipatory utility: the disappointment, or lower utility, after the event y be more than offset by the higher utility associated with the anticipation of the event: predicted utility (before trip), residual utility (after trip)
